Posted
by
Soulskill
on Saturday November 28, 2009 @12:15PM
from the we-look-for-things-that-make-us-go dept.

Hugh Pickens writes "Edmund Conway has an interesting article in the Telegraph where he analyzes where the money goes when you buy a complex electronic device marked 'Made in China,' and why a developed economy doesn't need a trade surplus in order to survive. For his example, Conway chooses a 30GB video iPod 'manufactured' in China in 2006. Each iPod, sold in the US for $299, provides China with an export value of about $150, but as it turns out, Chinese producers really only 'earned' around $4 on each unit. 'China, you see, is really just the place where most of the other components that go inside the iPod are shipped and assembled.' Conway says that when you work out the overall US balance of payments, it shows that most of the cash for high tech inventions has flowed back to the United States as a direct result of the intellectual property companies own in their products. 'While the iPod is manufactured offshore and has a global roster of suppliers, the greatest benefits from this innovation go to Apple, an American company, with predominantly American employees and stockholders who reap the benefits,' writes Conway. 'As long as the US market remains dynamic, with innovative firms and risk-taking entrepreneurs, global innovation should continue to create value for American investors and well-paid jobs for knowledge workers. But if those companies get complacent or lose focus, there are plenty of foreign competitors ready to take their places.'"

Maybe the author of TFA could also analyze who makes th eprofits off the many counterfeit [economist.com] iPhones mfg'd in China:

"Illicit phones comprise a staggering 40% of Chinese firms' production, and 13% of the world's, according to iSuppli, a research firm. It reckons China will produce 145m of them this year, up by almost half since 2008. This has hit sales of legal phones."

I refuse to believe that imaginary property is an acceptable replacement for real manufacturing capacity.

How many of those "counterfeit" iPhones are really counterfeit iPhones?

Devices like iPhones, BlackBerries, and WM or Android devices have similar hardware capabilities - it's the onboard software that differentiates them the most. When I think of a "counterfeit" iPhone, I'd expect something that runs a cracked/modified version of the iPhone software, not just something that has a similar case and similar home screen.

The knock-off iPhones available all over Shanghai all run a broken version of Windows Mobile, or a custom OS. None that I've seen run the iPhone OS...

.
This is the same with most cloned CE products. Knock-off Zunes use a custom firmware, knock-off iPods have their own OS, and so on. The hardware may be the same, but the firmware is usually a custom version, and it's almost always optimized for the Chinese market (being Mandarin with English or other languages a typically-poorly implemented afterthought).

Well on moral terms, globalized intellectual property essentially means that every country in the world has to enact the same laws as the countries that have intellectual property. Why should they? Some of those countries are democratic, but decided not to enact the same copyright, trademark, and patent system that the USA has -- should the power of the people be usurped just so that the US can balance its trade (on paper)?

On a more realist level, we have yet to convince every nation to take the same aggressive approach to copyrights/etc. that the USA takes, and we certainly have not convinced the citizens of those countries to respect such things. A quick trip to Chinatown reveals the problem: thousands of cheap clones of luxury brands, in many cases made of the same materials and with the same designs as the "authorized" versions, likely produced in violation of trademark and copyright agreements (perhaps from several companies, as in the case of knockoff iPhones). If these things were only being sold in China, it would be irrelevant, but they are being sold here in the USA -- meaning that someone had to buy them from China. Even if it was under the table, it still matters in terms of its economic impact.

So unless you have a way to convince the Chinese government to stop imprisoning people for practicing obscure religions and to start imprisoning them for infringing on American copyrights, I would agree with the GP: it is impossible to base our economy on "intellectual property." Real, tangible goods must form the backbone.

- aren't we here at slashdot opposed to some/most copyrights/patents...- the US congressmen keep expanding IP scope + duration to please their paymasters Disney and co. Should the rest of the world automatically accept that and follow suit ?- didn't the US gladly turn a blind eye to infringers when it was to their benefit ?

He's just one guy who did something amazing, but there was a trend behind him, and plenty of other examples. Ultimately it was in our best interests to stop being Britain's hunter/gatherers. By this point Britain was long past being able to stop us. China already realizes being our contract manufacturer isn't good for them, and already makes deals requiring we transfer some amount of our R&D work along with manufacturing. I daresay we can't really stop them either.

IP doesn't historically have a lot of strength behind it. It's easy to steal, it "doesn't hurt anyone" when it's stolen (sure it hurts some guy we don't know or care about!), and it's hard to put a price on it. The military might of planet earth isn't going to get raised in arms because someone stole the plans for the iPhone 4G, or even a semiconductor fab. Too abstract, why do I care, let them eat cake? Blah blah blah.

More to the point, are we willing to wage war on countries who "steal" our IP, and unbalance our trade/cause economic strife for us? If China decides to stop playing the "IP" game, what are we going to do about it, send over some lawyers and subpoena the hell out of them? IP exists by fiat, and without manufacturing and scientific R&D behind that fiat, it's an academic concept.

I'd rather we based our economy around manufacturing AND IP, not just one or the other. Vertical integration seems like a much b

I do find it immoral. The fact that a large percentage of IP is held by Americans doesn't change the immorality one whit. The evolution of copyright/patent law over the last 75 years has been just so freaking wrong. No patent, no copyright should last as much as 50 years. It was far more reasonable when 20 years was the maximum.

We did away with royalty, and the feudal system. We will eventually replace that with IP holders and a new feudal system.

I refuse to believe that imaginary property is an acceptable replacement for real manufacturing capacity.

It sounds like you find the concept immoral in some way, rather than impossible.

I don't find intellectual property so much immoral as it holds back progress. Even the father of the Free Market Adam Smith didn't like patents. He called them a necessary evil. That may of been true in his tyme but I don't believe is still true. Take the case with the iPhone. Apple probably has an exclusive contract with Foxconn and other manufactures to assemble iPhones and other contractors to manufacture the parts. If someone else has those parts somewhere along the lines someone is violating one or more contracts. And the Chinese government cares a lot about that.

As for progress, I believe today patents hold back progress. If someone makes an improvement in an item that is protected by a patent yet they don't hold the patent themself they can not make and market it. Without that patent though in order to continue making money from an invention a business has to provide something others are willing to pay for. A better quality product can be offered, the product can be sold at a lower price, and or improvements (ie progress) need to be made.

Now there are cases where I find IP immoral such as with biopiracy, for instance company X gets a patent for some rice Y or another one gets a patent on the use of a plant as a drug or pesticide even though others have used it in those ways for centuries.

The article is a complete piece of crap. Because it never dives INTO the money flows. It doesn't show what that 150 dollars the chinese get MEANS. For instance the idiot who wrote this never touches on the most basic point. That 150 dollars to china is a LOT more then 150 dollars to the US. The average wages are completly different, based on a quick google it seems to be about 100 dollar vs 2000 dollars. So 1 iPod sales generates enough money to pay for 1 months work in china but only a... few days in the US.

This is to say nothing about the effect on the workforce, in China, the jobs are spread out. You both need directors to run the factories and janitors to clean the toilets. In the US, far fewer people are involved. Especially in that section of the economy were the most people fit, the blue-color laborers, the factory workers. So a few designers and Steve Jobs are swimming in it, doesn't help the millions of unemployed, doesn't breath live into ghosts towns were the only jobs are handing out unemployment stamps. And where do these people who longer can find a job get the money to buy an iPod? They don't, they buy a cheapo MP3 designed in China, build in China.

Thank you Mr Idiot from the guardian, we KNOW how the economy works, the exact same idiotic posts were made about Japan. Don't worry, Japan will only take a tiny bit of cash at the bottom, all the real money will be earned by the west. Yeah, this worked SO well, that Japan is now conveniently lumped with the west. He happily lists that core components with lots of IP come from Japan so that those pesky chinese won't make a penny of it. Eheh, so what is China to stop from doing to Japan what Japan has done to the west? If his theory about IP holds up, then those IP could never have become possible in Japan.

If the iPhone was made in the US, the US economy would be richer by 150 dollars as well.

FLAWS:

A dollar does not have the same value across the globe.

This same argument was held for Japan as country with cheap labor and no IP, now Japan is suddenly listed as an example of a country with IP so that it is safe from cheap labor.

Forgets that the shift of money has an effect not just on the whole of the economy, but on different sectors and in different ways, no more factory jobs in the US.

If you want to see the effect of the global economy, look around. I life in Utrecht, and that has an industrial park called "Lage weide". There is a LOT of distrubution activity, lots of shifting around of good but almost no production. One produces big metal thingies and the building looks ready to collapse and that is about it. Everything else is warehouses, with the contents, "produced in China". And warehouses are easy to automate. Hema (dutch retailer) has opened one of the most advanced warehouses in the world recently, yet fewer people working and the work there requires no skill (and therefor no pay and no security).

Look around, why do you think the economy is in the crapper? Because nothing is being produced anymore. The factory towns may not be glamorous but it is where the core of a country makes its living. Not the rich who rule the country, not the super poor, but the average worker who pays the taxes that allow the government to function, who deliver the soldiers for the army.

Empires collapsed before, the western empire will get a rude suprise sooner or later when China changes its tune. And no, I don't mean in an evil plot kinda way, I mean when China does what Japan did ages ago. Become an economic power with its own IP. Quick check, how many high-tech gadgets in your house are produced in cheap labor country Japan? PS3, Wii, Sony-Ericson phone and countless others where you might not even think they came from Japan? Ask your daddy what the China of their day was (or maybe your granddad if you aren't as old as me).

So extracting the core of your argument from the long pointless rant that you've wrapped it in:It's wrong to trade with poor countries, because they derive more advantage from it, and become rich countries.

Err, how is this a bad thing? Using your example of Japan, what the value of bilateral trade between the US and Japan immediately after the second world war, and what has that value risen to after decades of investment in their economy.

The best kind of world for rich industrialised countries to be in, is one in which their competitors are rich industrialised countries with similar production costs.

His post was in no way a "long pointless rant." It is accurate and factual. The only thing missing is a corrolary which would have answered your point. It is a bad thing for the developed country because the ownership of industry in in that country (the US) is not even close to equally distributed, but rather concentrated in the hands of a small and hideously wealthy minority. That means that when the manufacturing base is off-shored, this wealthy minority make even more money whilst the class of domestic people that had to work to receive a salary or wage are no longer needed and become poverty stricken. If wealth were more evenly distributed, then offshoring would be an overall good for the country. But in fact it merely increases the gap between rich and poor, pushing middle classes down into the poor and the poor trying to cling on best they can. This leads to a cycle of poor education, destruction of the country's own domestic industrial capacity (and IP capacity perhaps these days). That's the problem.

Offshoring labour is a consequence of the different standards of living in China and the US. If the current trade situation does result in the enrichment of China then that barrier will disappear and suddenly American employees will become more attractive in the global manufacturing market.

The main issue with the trade imbalance at the moment is that the Chinese are holding down their currency by recycling their profits in the dollar market. Once that imbalance is corrected (probably by a massive devaluation of the dollar scaring the Chinese into withdrawing their assets) there will suddenly be an extra billion consumers in the world with disposable income.

Rather than answering my point you seem to have missed its most important consequence; China's main competitive advantage over the US is poverty. That is what has decimated US manufacturing, and that advantage is removed if China becomes rich. Lifting your rivals out of poverty is the best way to end your own destructive spiral.

Here's a clue: if everybody in China did get rich, they would be earning more than $6000, and the average for USA+China would be higher.

Not if most of China's riches come from USA. Then the average he posted simply would not change much. Which is the point I believe the GP was trying to make.

Oh, so the only way to become rich is to make some one else poor? The whole world is richer today than it was just 50 years ago. Sure some got wealthier than others but even the poor can eat today in the US. I know,

The treaty of Versailles led to World War II, along with general political unrest that had to come after the conclusion to WW I. You can't just make up history when the real thing conflicts with your world view.

Considering that American recovery (and quite a few other countries according to wikipedia) from the Great Depression began in 1933,

American recovery yes, but America didn't start WWII. Europe wasn't recovering as early as the US. You mention wiki but obviously you didn't read the wiki article on the Grreat Depression [wikipedia.org], otherwise you would not have missed the second sentence which says "The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted unti

First of all, do we want places like China and North Korea to be rich countries? China's government structure is not one that encourages freedom of thought. Not only that, but they *support* North Korea. I have no doubt in my mind that if China become the big kid on the playground, they'll start trying to conquer whoever they can. Already, they're hard at work taking what they can.

Secondly, it is the job of OUR nation to run OUR nation. Even if the destruction of America makes 1 billion people richer in India and China, it is our responsibility to not let that happen. Ideally, we run our nation in a way that benefits everyone, but right now, both blue collar AND white collar jobs are being outsourced. If we get India to design our crap and pay China to build it, where are we supposed to earn money? As a nation we have to create more wealth than we spend. It's as simple as that. There's no magic money equations that our nation keeps being told exist. If you don't create wealth, sooner or later the rest of the world devalues your currency and you're left with nothing.

That's not quite true. China has enormous defensive capacity - nobody's going to conquer it by conventional means. But wars are expensive and it doesn't have quite the stability and economy to go on wars of aggression. Certainly it can start throwing men at other countries Russian style if it wishes. But China doesn't have military parity with the USA. And that's leaving aside the nuclear power of the USA which would prevent China from engaging in any direct confrontation with the US. What China can do is

Beat me to it. You'd think that enlightened progressives would be thrilled at the prospect of a billion people substantially improving their living conditions. But it exposes one of the uglier sides of the zero-sum economic thinking that pervades the left: one party's gain is another's loss, so we should keep other countries poor so they can't take our wealth.

But it exposes one of the uglier sides of the zero-sum economic thinking that pervades the left: one party's gain is another's loss, so we should keep other countries poor so they can't take our wealth.

What the hell does this have to do with "the left"? If you look at the whining about the Chinese "taking our jobs" it comes just as much, if not more, from the right. But left/right is just a smokescreen here. It's a populist thing, not a particularly ideological one.

I'd wager that you're just a partisan who treats "the left" as some sort of bogeyman without understanding the dynamics, or what it really means.

I used to think like you. Still do, to some extent. But reality is a whole lot more complicated than your postcard analysis.

In particular, it's hard to ignore the fact that the major economic trend of the late 20th, early 21st century is the commodification of labor. Specifically, reducing the amount of labor we need to do all of the things we did before. To some extent it's China and India, to another extent it's automation. All of these are good things, and may have positive effects (and some terribl

Xenophobic claptrapif the iPod was made in the usa it would cost $750 and break within days. Just like the cars, which are rubbish.

Trade is not a war - it is a way for us all to get wealthier, healthier and sustainably so. Read what you write with an equal value on each human life - I'd far rather pay a bunch of peasants in China to uplift from inefficient farming than one person in the usa to have a low wage manufacturing job.

I'd far rather pay a bunch of peasants in China to uplift from inefficient farming

you won't when the price of food doubles, said peasants can no longer buy enough to feed themselves, meaning they have to work all hours for even less money leading to mass immigration to 'rich' countries where wages are driven down by immigrant peasants working for far less than the standard rates, leading in turn to mass unemployment, bubbles in shoddy real-estate development, and more tax being raised to support benefits.

I think it is more likely that if it were made in the U.S., it would be made at an automated factory with two or three people overseeing the entire production line except when something breaks. China would lose thousands of jobs. The U.S. would gain single-digit jobs. The product would cost about the same, though the margins might be a bit slimmer. On the flip side, the side effect would be short-term additional jobs at the companies that made the automation equipment, which might be in the U.S., China,

so i read many of the comments and thought most were unexpectly fine. so i read the TFA and many of the comments and many of the comments were fine. so i will try to ask a relevant scientific question.

What is wealth?

A good answer tends to explain much, but i have never gotten a response in previous attempts. I suspect it makes people uncomfortable. Yet many of the comments here touch on the question. even TFA touches.

of couse, you right, but aietreme's definition did not require that. and he actually had an actual definition while you just make a practical observation, which seems to imply that wealth is selling something, presumedly desired by a willing buyer and I guess we presume he has something the seller wants to give in exchange. This is not quite right. Consider the versallias treaty and the french invasion of the ruhr? The french looted the industrial capital. the trigger for world war ii. Now wealth pres

okay, you like exchange-value. There have been a lot of communialist experiments in the US and I doubt thet were all based on exchange-value. And I recall some renegade jesuits on the pacific coast of south america had an odd thing going and were being successful until maybe the Spanish made a point of sending a military expedition. I do not think they were exchanged based. Figure it was deity based totalitarianism with a communalist slant. Exchange-value events do not fit in well.

I am enjoying the way you are deconstructing people's definitions.:) But try mine: Wealth is something that has utility. Accordingly, what constitutes wealth can change according to our ability to utilise things. Your earlier example was questioning how perhaps Saudi Arabia could be wealthy by having oil, yet not be wealthy if it didn't sell it. Before we could drill and ship oil, Arabia was not wealthy. But now that we have that capacity the Saudis can add utility to the oil by drilling, and thus it beco

An average wage in China is about $104 per month. At minimum wage in the U.S., the monthly wage would be about $1160. A typical factory work earns significantly more than minimum wage, though. So if an iPod brings in $150, that's about 1.5 months at an average Chinese daily wage, or a mere 20.7 hours (half a week) at U.S. minimum wage.

TFA suggests that this means the financial hit of off-shoring manufacturing is actually small. Whether or not the article is correct on money making its way back to the US, there is an important factor. The money is making its way right back into the pockets of the company owners and rights holders. The people who would normally make their living in these manufacturing jobs are still stuffed. I don't think that any "trickle down" effect from returned profits is going to make up for that.

The people who would normally make their living in these manufacturing jobs are still stuffed.

OK, think about this a bit. The i(x) or any small electronic device really doesn't consist of much. PCBs with chips can be fabbed anywhere. Nobody is even using hard drives. Plastic cases? Same thing.

So it's not surprising that much of the money is not tied up in manufacturing the product. Nobody is getting rich actually making the thing. Even if you paid the factory floor worker a decent wage, it would

Each element that you speak of, right down to the packaging and external box labels, are manufactured.

The problem is that most of these pieces don't happen in the USA, they're individually made mostly in China and the ASEAN countries. We've exported the labor component, as have many US companies.

The 'shareholder' value is corporate speak for being enslaved to Wall Street for the task of producing excellent quarter after excellent quarter. No regard is made for US labor at all, and the fact that the labor is

The people who would normally make their living in these manufacturing jobs are still stuffed.

No amount of sugarcoating can make up for the hard fact that manufacturing jobs are outright lost, leaving the American economy with mostly service jobs. The problem is that the US economy is saturated with service jobs.

But even service jobs are being exported (IT and Medical diagnostics) now. If the job is not bolted down to the floor of a fast food restaurant, companies will try to export that job.

I agree... and read the comments following TFA; they're much more on point. Once we export all our knowledge, what do we have left? manufacturing is long gone, and food production is going overseas too. What happens when we are purely a nation of consumers?

Tho sometimes one thinks that most businesses are already mainly selling marketing to each other, rather than selling an actual product.

We produce more knowledge and export that. There isn't a limited amount of it to be had, you know.

Manufacturing is not the end of a society's economic development, no more than agriculture is. Industrialization is just one in a long series of steps a society takes to increase its power and improve the socioeconomic well-being of its populace. The US and the rest of the Western industrialized societies are now finishing the transition from an industrial, manufactruring-based economy, to a post-industrial, knowledge-based one. At the end of that transition, the engines of national wealth generation will be, to quote Stephenson, music, movies, microcode, and high-speed pizza delivery.

Exactly my point. Despite what the geek set thinks, the real world runs on food, fuel, and hard goods, not on knowledge or information processing or advertising. All the knowledge in the world is worthless if you have no way to apply it -- be that extraction, farming, manufacturing, or whatever results in a *tangible* product in the marketplace. And knowledge can be copied at zero cost, at which point it ceases to have any market value whatsoever (the lesson we should have learned from digital copyright inf

Actually the US is one of the largest, if not the largest, food exporter in the world.

Not for long, if things keep going at the present rate.

Curious I wanted to see what foods China exports and found this: Chinese Food Exports to US Top US$4 Billion in 2007 [flex-news-food.com]. At the top of that list, with more than $2 Billion in exports is fish and shellfish. That won't last long as overfishing is depleting fish stocks. The next highest is fruits and preparations including juices, at less than half that, only $816 Milli

Each iPod, sold in the US for $299, provides China with an export value of about $150, but as it turns out, Chinese producers really only 'earned' around $4 on each unit.

The differences in salary relative to cost of living ought to be taken into account. The average daily salary of a Chinese person is was around USD14.1 [china.org.cn] last year..

Secondly, it's not just about revenue but longer term industrial dependency. Were China to suddenly refuse (due to political embargo, for instance) to produce such items Apple would suffer a considerable economic loss, if only while they secured an alternative manufacturer. Chinese and Taiwanese companies are in a good position to steer the market in their favour, eventually producing (if not already) competing products for their own market - the world's biggest in many sectors - and others abroad.

"Intellectual property" is not a solid plan for balancing trade, since not all countries have the same view on patents and copyrights, and certainly not on trademarks. After all these years of people crying about "counterfeit" goods, why would someone use "intellectual property" as the justification for the current structure of the US economy?

Actually, balance of trade calculations have historically ignored payments for intellectual property and services and have only counted raw materials and manufactured goods. This has been pointed out numerous times in the past as people bemoan the balance of trade deficit the the U.S. historically runs. The so called "U.S. balance of trade deficit" really isn't as bad as or doesn't even exist due to all if the money that flows into the U.S. due to IP and services.

Except that tangible goods are exactly that: tangible. Copyrights, patents, trademarks, and trade secrets are only meaningful if governments are willing to enforce them. Claiming that it is OK for one country to import tangible goods at a higher rate than they are exported because the imbalance is corrected by contractual agreements is kind of like saying it is OK to smoke a cigarette at a gas station. It is something you can get away with for a while, but it is not a good idea in the long run, and it w

Except that we are talking about trade. If you sell tangible goods to China, and the Chinese government does not respect its citizens rights, that does not mean there is a problem in terms of the trade balance. If you sell copyright contracts, you are relying on the Chinese government to respect your rights as guaranteed by America's laws -- much shakier ground to be on.

Perhaps, but I was responding to your notions of copyrights and whatnot somehow being illegitimate forms of property, and that they uniquely require government enforcement, where other property rights don't. Which is clearly not true.

The United Kingdom produced a lot of "IP" in the XIXth century. From works in literature to scientific research and applied research. Steam engine? Steam turbine? Railroad? However as the century passed increasingly the USA started ascending in power due to a greater industrial production capacity driving a virtuous cycle. The people who manned the factories had the money to buy the new products and more money was available for R&D. Once the British Empire lost its colonies, access to cheap raw material

The mistake any article like this makes is it assumes that the people providing the cheap manufacturing labour are content to continue doing so indefinitely - even when the factory owners can easily find out precisely how much their product is making in the country it's sold in and compare it with the amount they get to see.

History has shown that this is frequently not the case - I refer you to the UK's former motor industry.

That is the problem of the western economic journalism and generally also the western economists they have forgotten to think in long terms usually their memory lasts and foresight lasts only for the next 2 years without taking history into acocount.

IP is vaporware, production is also assembling of knowledge, and in the long run no producer needs any middleman once he has earned enough money he can provide the goods himself, also IP is fading if you do not produce it steadily enough. If you produce you have to do also do some research which means you build up your own ip in the long run and then you can cash in from the others (within the bounds of the system) so if you dont keep some core industries in the country as well as to try to build knowledge upon it you soon will be paying only without getting anything back.The chines pretty much know that, but our western economits dream of clouds (jobless recovery, IP based economy etc... all of those constructs did not work out in the past, why should they now, the rule of the game does not change unless humanity changes)

The funny thing is, the stronger we try to build up our ip laws on a worldwide scale now, the more problem we will have in about 20-30 years to get out of the misery we are building currently for the sake of the quick buck.

Innovation usually follows production in the long run, since the west things we can survive on IP alone we will have a bad wakeup call in about 20-30 years timeframe, no production, no invention period, the patents usually are the last to follow due to the grace period but they are slowly moving towards asia as well.

No matter how much money is made in America from items assembled in China, everyone can't work at Wal-Mart and Burger King and be able to afford said items. Don't get me wrong, those are real jobs and I even worked at a Wal-Mart many years ago, but in the past, service jobs were not the base of the economy. If everybody is making minimum wage with no benefits whatsoever, who can afford services? Thus a service-based economy isn't sustainable in the long run. Yeah, we will survive and life goes on, but we shouldn't just count the beans and proclaim everything is alright. We need to take into account several things:

How citizens are treated by the governments of our trading partners, for instance.

What happens to our economy when nothing left but service jobs is another one.

When the trading partners are using the profit from us to build up armies to come back over here and kill us, should make the list as well.

If everybody is making minimum wage with no benefits whatsoever, who can afford services? Thus a service-based economy isn't sustainable in the long run.

This is a point I bring up all the time. You see these talking heads, economists (usually, but not limited to, right leaning, business friendly) and such on television talking about how 2/3rds of the US economy is consumer spending (most recently propped up by cheap money), while at the same time saying that the manufacturing jobs that were the backbone of the middle class dream are "gone forever". All it takes is stopping to think that if those stable good-paying jobs are "gone forever" and the days of che

The challenge with this analysis is that it only focuses on a small component of the overall economy. The apple iPod is a great example of this, and areas where the US can develop and market these high tech items we can assemble them oversees as ultimately we will make the profit back here in the US. The challenge is that there are many elements of the economy that based soley on manufacturing and this is an area where China has an advantage. Also many companies that were historically american have been

I have doubts about the article's numbers. If that was true, how could China have a huge trade surplus? If the article was correct, all of the export gains would be spent on IP fees to non-Chinese companies, and would reduce their trade surplus. That's not what we observe.

So, while it's important to have a sound R&D and to have plenty of licenses ready to sell for lots of product, this does not replace a good manufacturing basis.

Well, I came for some insight, and instead there are eleven posts above me trashing the United States. So here's some actual thinking instead of the usual Two Minutes Hate.

China does indeed make very little from its manufacturing. The Chinese bemoan the fact that they're making so much for the world and getting so little in return. The reason is lack of brands - Chinese people just don't see brands as being important. They don't trust anything that they can't hold in their hands, and you wouldn't either if you had just emerged from fifty years of enforced poverty under a radical leftist government. Another problem is the rampant theft of IP and cutthroat domestic competition. Foreign brands have much of the high end, and Chinese companies are forced to viciously compete on price at the low end. And hey, if you do invest in R&D, Chinese IP laws are so weak that you'll get ripped off - why make money for someone else?

Suppose there was a phone that did everything the iPhone did, but didn't have the Apple logo on the outside. It wouldn't be nearly as popular, because there are plenty of people willing to pay $$$ for anything with that logo on it. Indeed, American companies come to China to make money, and make it they do. Apple is making money hand over fist with the iPhone. The Chinese get the scraps. Companies like KFC and Nike are kicking ass in China's domestic market.

The part about innovation is spot-on: the Chinese simply don't have that culture of "fixin' things" like we do. The usual attitude is to wait around for the government to do something. I've had my product copied so many times when it would have just been easier (and more educational) for the company to make its own damn product. Who knows, they might have made a better one instead of an inferior copy. But they'll never know because they just can't see past the end of their noses.

Suppose there was a phone that did everything the iPhone did, but didn't have the Apple logo on the outside. It wouldn't be nearly as popular, because there are plenty of people willing to pay $$$ for anything with that logo on it.

I have to call BS on this part of your argument. Sure, the Apple logo is enough to get the product some initial recognition in the marketplace. However, the iPhone's popularity is mostly down to its innovative interface. Now that we're starting to see devices appear that are capable of everything the iPhone is, and quite a bit more besides, they're beginning to cut into the iPhone's market share. Unless Uncle Steve pulls something special out of the hat next year (which, to be fair, he may well do) the iPho

I, personally, doubt the iPhone will "nosedive" as you say. While I agree that their market share will decrease, I think they will remain a leader in their market. Why does Nike stay so popular now that there are many brands that make comparable goods? They have built themselves a reputation that people can recognize and correlate to their expectations. So has Apple with the iWhateverTheyMake. (I think they should make iBoxers. You could listen to your favorite tunes while getting it on.)

True, 'nosedive' might be too strong a word. The fact remains that Apple will have to continue innovating to retain their market share. Any sign of complacency will result in a loss of that market share, whether rapid or gradual.

The iPhone is beginning to look somewhat dated compared to recent smart phones. I'm sure we'll see a significant refresh next year, but if we don't I can't imagine many iPhones being sold 12 months from now.

Suppose there was a phone that did everything the iPhone did, but didn't have the Apple logo on the outside. It wouldn't be nearly as popular

There already are phones that do everything the Iphone does! I'm confused by your statement - are you seriously unaware of this? And yes, they're more popular (Apple are a few per cent of the market - Nokia are about 40%, Samsung are second IIRC, with lots more in between them and Apple).

If you meant the Ipod, as the article was talking about, you might be right. But t

Singaporeans are more British than Chinese. As one of my friends from Singapore says, "I thought I was Chinese, until I came to China!" Taiwan is composed of all of the capitalists who were forcibly evicted from the mainland.

Taiwan is composed of all of the capitalists who were forcibly evicted from the mainland.

Chinese weren't evicted from mainland China, instead some 2 million KTM Nationalists fled Mainland China and invaded Formosa. There is a reason Formosans call 28 February 1947 Taiwan's Holocaust [taiwandc.org]. Some capitalists stayed on the Mainland though, and had their property taken away. Others made it to Macau or Hong Kong.

Americans rejoice as the exploitation of cheap workers in far away oppressive countries makes filthy rich investors who happen to live closer, rather than further. The rest of the world's feelings about economic imperialism and the resentment these inequalities create are the products of Emmanuel Goldstein

Hey, guy? Emmanuel Goldstein was a capitalist (The Theory and Practice of Oligarchical Collectivism). Big Brother was the communist (Ingsoc = English Socialist Party). Funny how people turn things around to fit what they believe instead of what things actually mean. (Spoiler alert: it turns out that Big Brother invented Emmanuel Goldstein.)

A more careful reading of 1984 would help you realise that Orwell believes that the class war is ultimately circular, with the rising of a middle class which grows powerful enough to be the upper class, no matter which political system is applied, be it medieval mercadillism, capitalism, communism, the fictional Tao or whatever. Also, Emmanuel Goldstein is the "enemy" his loyalties and beliefs the target of the propaganda of the Socialist State. I.e. when Oceania is at war with Anatolasia, he is supposedly

Face it, you are a nation of consumers with no real manufacturing left.

The US still has manufacturing though much of it is hidden and you have to look for it. Check out Etsy [etsy.com], the place to buy and sell hand made things. Makezine [makezine.com] and Craftzine [craftzine.com] are American zines for American makers and crafters. The US still has spinners [wikipedia.org] who spin and create their own threads. Some of whom will go on to make their own cloth, others sell their threads to those who will make cloth. Then they will make or sell to those who m

Face it, you are a nation of consumers with no real manufacturing left. You all demand cheap goods, and if that comes with the price of outsourcing to foreign sweatshops, you accept it by turning a blind eye... if all your manufacturing was done inside the US, none of you could afford to buy anything.

The USA remains by far the largest manufacturer in the world, producing $1.8 trillion [curiouscatblog.net] in manufactured products in 2006.

If the US refused to import manufactured goods from outside the country, few jobs would be

that this is simply another attempt at rationalizing world government and the demise of national sovereignty. Its just trying to say that our huge deficit to other countries is okay because we get a little back from it, and its not worth demanding any sort of independence.

The author is quite blissful! He completely forget that what he is saying is true, but only half of the truth. In the end, we still need $4.00 of exports TO china to make it all balance out.

When we import any thing, some number of dollars leave this nation. If a corresponding number of exports be it in commodities such as grain or coal, or brain share such as banking services or designs (or legal fees), is not made, we end up owing the nation from which we imported the good from.

In other words, if we import $200,000,000 in a year and only export $150,000,000, we end up owing $50,000,000. Sooner or later those dollars WILL have to make it back to us, whether it is from the other nation buying buildings, gold or politicians (us: china please be kind to your people. china: mind your own business or we will collect on your debt!).

Of course the numbers I quoted are quite small compared to reality. Scale them accordingly.

No, the author's point was that - because of the way trade deficit numbers are calculated - we only apparently have a $700 billion annual imbalance. Basically, the way trade stats are worked results in an iPhone showing a $140 deficit, when in fact it completely ignores the $160 of profit made on the product. China makes about $4 in profit.

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To summarize, the author's contention is that it's not the gross dollar flow that matters, but the retained earnings - the profit - that matters. And in that case, the vast bulk of the money stays right inside the US.

And that is where the bliss comes in. Lets aqll BLISSFULY IGNORE(ance) the fact that we keep buying goods from other nations and don't sell them as much back. Just like any good electrical system, once the differential between the poles is high enough, there will be an arc when the dollars WILL come back. the question will be is what will it do to us then? I guessing rampant inflation OR a total loss of our country, I hope for the latter, though it won't be pretty either!

To me the whole problem is the retail model; towit how about that $199 to $299 markupto have these darned things sitting on a shelf? It would be so much more efficientto cut out the middle men and supply iPOD's on demand...the fact is the blue collartweekers got completely screwed by THE MAN. Their jobs were off-shored in favorof store clerks. Also this article doesn't focus on things like brooms and clothing andsuch. No such profits find their way back here due to intellectual property windfall.The fact is

It does not, however, get into the U.S. economy at large. There are the local retail sales people and the like, but the big money goes into the people with big pockets and pretty much stays there. One only has to look at the current figures for distribution of wealth to show that there is nearly no middle class left in the U.S. Further, all the money is being made through imaginary property ownership. Some say the roman empire fell because their economy shifted to an economy based economy... the same with the british empire. The global empire is in trouble for similar reasons.

We need our manufacturing back. We need our agriculture back in the hands of individual farmers. Some things are just better when people are working.

TFA has a nice pie chart with the heading "Value captured by country for $190 of captured value for $299 iPod sold in the U.S."

I am not an economist, can someone explain to me what "captured value" means and what happened to the $109 not mentioned on the pie chart? Where did that go? If China got it, then its more than the $4 mentioned in the article.

1. Make claim that defies common sense and knowledge (but could be correct, common sense and common knowledge are not infalliable)

No a developed country can't run a trade deficit forever - thus it does in fact need a trade surplus (well dead even is fine too) to survive.

The US gets away with it simply because the US dollar is used as the reserve currency and trade currency for most commodities. Other nations get away with it due to China's games with the US dollar knocking on to their currencies.

What should happen is that the relative value of the currency of the country running a deficit will fall until it is no longer running a deficit. It's simple mathematics.

The rest of the world keeps printing money and buying US treasuries to stop this inevitable re-balancing, but it will happen at some point - it gets more and more unstable the longer the current situation is propped up. Of course humans can keep unstable situation balancing for much much longer than it seems possible (witness US real estate prices - a bubble that "should" have popped in 2003 but lasted much longer, and staill hasn't fully deflated)...

Yes it is a very traditional conservative paper, but it is well known for its high standards of journalism. Simply put if you grow potatoes in Idaho and buy iPods from China you grew iPods in Idaho. Let me dismiss the majority off negative comments on this with the observation that they demonstrate a fair lack of understanding here of either Marxist, Capitalist, or Modern economics. Not that this is terribly unusual since almost everyone thinks that they understand micro or macroeconomics. There are more armchair economists than generals.

The article conveniently leaves out that by giving control of manufacturing to China, the US loses out in the long run. American jobs go overseas and our technical prowess diminishes. Strong economies produce, export, and sell. Service economies are weak and founded on shale. We have seen the effects of a service-based economy in two recessions: dot-com bomb and the housing bust. Manufacturing economies breed technological innovation, encourage higher education, and engage in heavy research and development. Not to mention, a manufacturing economy gives way to strong national security. Being dependent upon China and others leaves the US in a weaker position.

1. Eye contact and conversation with people nearby are becoming too frightening for people.2. Most of the music being produced formally is crap.3. The Musical Idolatry Complex is no longer capable of concealing Point 2.4. Cocaine use is dropping because of Point 3.5. Wall Street has not been affected by Point 4.6. DRM is dead.7. Most people think "more bass" is a substitute for a crappy bitrate, but Point 2 makes this fact moot.8. "Zune" is a crappy name for a product.9. Consumers and sheep are not disturbed by the suffering of others.10. Point 9 is as true for international relations and the slaughterhouse as it is for my ears on the bus in the morning.

As a veteran full of patriotic zeal I approve of your ideas, and wish to subscribe to your news letter.
As a realist, I should point out that we obviously have problems taking on two third world countries at once. That can be attributed to lack of foresight in the planning stages thou, I would say that if we had to take on the biggest five militaries in the world, they might bring friends with them too. How about we leave military might out of an economic discussion, it muddies the waters a bit.

Remember that this profit still exists after paying workers wages to make these goods, which still has far more significant benefits for the economic security of a country that 'net profit' to one company.
The Right Wing nuts always choose ignore this fact

More like anti-capitalists ignore the fact that most people want to make money and communism failed. Why do so many people oppose voluntary exchanges of goods and services?

I think this guy is missing the obvious. Who is guying the Ipods....Americans. That means every time apple sells an Ipod there is a net flow of $4 to china.

And you're missing something. Every tyme a Chinese buys something made in the US money flows from China to the US.

I don't see the Chinese buying products manufactured here.

Because you're not looking and seeing the whole picture. Behind Germany and China the US was the third largest exporter [hofstra.edu] in 2007. Here [uschina.org] are some things China buys from the US.